1 Both are Senior Lecturers at Faculty of Economics and Business, University of Jambi, Indonesia, E-mail: [email protected]I J A B E R, Vol. 14, No. 6, (2016): 3893-3907 DOES THE EXPORT SUBSIDIES ELIMINATION LAUNCHED BY WTO AFFECT THE WORLD MACROECONOMIES? Haryadi and Rahma Nurjanah 1 Abstract: This study specifically intends: (1) to identify the products that are given export subsidies by developed countries particularly United States of America (USA) and European Union (EU), (2) to explore the impact of export subsidies elimination particularly on agriculture by those countries on some world macroeconomy indicators such as Real GDP, Balance of Trade (BOT), and welfare society, and terms of Trade. Computable General Equilibrium (CGE) Model has been used to answer the research purposes, meanwhile The General Trade Analysis Project (GTAP) was employed as the main tool of analysis. The results show that impacts of export subsidies elimination by USA and EU on macroeconomic indicators are quite interesting. This policy does not result in a decrease in the EU macroeconomies as it has been expected. Infact, some their macroeconomic indicators increase when their export subsidies are eliminated. Meanwhile the impacts of this policy on the developing country macroeconomies are varied, but most of countries and macroeconomic indicators experience negative impacts, even not significat. We conclude that export subsidies elimination by developed countries will not demage either the USA or the EU’s macroeconomies. Otherwise, this policy creates an improvement on some their macroeconomic indicators. Based on this finding, therefore, there is no reason for EU to be afraid to implement the export subsidies elimination. Keywords: Export Subsidies, Trade Liberalisation, GTAP Analysis INTRODUCTION The period from 2005 - 2015 was a period of significant change in free trade. This change marked by events such as the agreement of phasing out all forms of trade protections like domestic supports, export subsidies, and tariff that have been agreed by WTO’s (World Trade Organization) conference members on the Ministerial meeting in Hong Kong at the end December 2005. In the context of export subsidies, there are four important points that have been agreed. Those are: (1) determination of the modalities for reduction in all
Transcript
1 Both are Senior Lecturers at Faculty of Economics and Business, University of Jambi, Indonesia,E-mail: [email protected]
I J A B E R, Vol. 14, No. 6, (2016): 3893-3907
DOES THE EXPORT SUBSIDIES ELIMINATIONLAUNCHED BY WTO AFFECT THE WORLD
MACROECONOMIES?
Haryadi and Rahma Nurjanah1
Abstract: This study specifically intends: (1) to identify the products that are given exportsubsidies by developed countries particularly United States of America (USA) and EuropeanUnion (EU), (2) to explore the impact of export subsidies elimination particularly on agricultureby those countries on some world macroeconomy indicators such as Real GDP, Balance ofTrade (BOT), and welfare society, and terms of Trade. Computable General Equilibrium (CGE)Model has been used to answer the research purposes, meanwhile The General Trade AnalysisProject (GTAP) was employed as the main tool of analysis.
The results show that impacts of export subsidies elimination by USA and EU on macroeconomicindicators are quite interesting. This policy does not result in a decrease in the EUmacroeconomies as it has been expected. Infact, some their macroeconomic indicators increasewhen their export subsidies are eliminated. Meanwhile the impacts of this policy on thedeveloping country macroeconomies are varied, but most of countries and macroeconomicindicators experience negative impacts, even not significat.
We conclude that export subsidies elimination by developed countries will not demage eitherthe USA or the EU’s macroeconomies. Otherwise, this policy creates an improvement on sometheir macroeconomic indicators. Based on this finding, therefore, there is no reason for EU tobe afraid to implement the export subsidies elimination.
The period from 2005 - 2015 was a period of significant change in free trade. Thischange marked by events such as the agreement of phasing out all forms of tradeprotections like domestic supports, export subsidies, and tariff that have beenagreed by WTO’s (World Trade Organization) conference members on theMinisterial meeting in Hong Kong at the end December 2005.
In the context of export subsidies, there are four important points that havebeen agreed. Those are: (1) determination of the modalities for reduction in all
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forms of export subsidies (end of 2013), (2) disciplinary STE (State Trading Enterprise)in export subsidies, and government funding that could lead to trade distortions, (3)disciplining the provision of food aid in the form of monetization and re-export,and (4) disciplining export credits, export credit guarantees or insurance programs (Programmes insurance), exporting STE and food aid (to be completed 30 April 2006).It is, however, although agreement to implement the three pillars have to be startedsince 2013, until 2015 these plans have not truly been implemented.
As stated by Haryadi (2008) that different perception between those who areinfavour and those who are against WTO is never ended has been proved.Developed countries as the first group, which popularize the concept of free trade,were not consistent with their promise. One the the proof of this inconsistency isdemonstrated by the fact that until today the developed countries still imposeexport subsidies for some commodities they export.
WTO (2015) reported that there are 429 commodities that there are stillsubsidized exports worldwide (Table 1). Among them, 214 are export subsidiesimposed by European countries, 13 by the United States, and 6 by Australia. Thismeans that more than half of the export subsidies are done by developed countries.
Table 1Export Subisidies by Country/Countries Group
Number Country/Countries Group Export Subsidies
1 Africa 622 Asia 83 Europe 2144 Least Developed Countries 205 Midle East 06 USA 137 Australia 68 Total 429
Source: WTO, 2015
Defever, F and A. Riaño (2016) study the effect of subsidies subject to exportshare requirements (ESR). They suggests that this type of subsidy boosts exportsmore and provides greater protection for domestic firms than a standardunconditional export subsidy, albeit at a substantial welfare cost.
The question arises against this condition. “Why are developed countries stillimplementing export subsidies?”. There are indications that the developedcountries only impose developing countries to remove export subsidies, meanwhilethey themselves are not willing to eliminate the export subsidies. This conditionindicates that as if there is a doubt for the developed countries about the benefitsof free trade itself.
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Generally, two blocks have an interest in the WTO. Those blocks are developedwhich is motorized by United States of America (USA) and developing countries(Haryadi, 2008). European Union (EU) and United State of America (USA) motorizethe developed countries, while the developing countries led by Indonesia, whichestablish a group known as G33. The developed countries push developingcountries to eliminate export subsidies for agricultural products that will beexported to developed countries. In contrast, developing countries push developedcountries to allow them to prevail a special treatmen for a certain products. Thereason of developing countries to apply such policy is plausible enough that thedeveloped countries still help their domestic producers through export subsidyprograms. This policy has pressed cost of production and raised the production indeveloped countries. This results an increase in their production because theirfarmers get incentive to raise their production. The impact of this unfair policywill bound their imports.
Refer to WTO’s agreement, there is actually an agreement to eliminate all tradeprotection. The agreement has been ratified at the ministerial conference VI ofWTO in Hong Kong 2005. Based on this agreement, three pillars in agricultural(domestic supports, export subsidies, market accesses) will be eliminating by 2013.Nevertheless, this policy has not been thoroughly implemented. It seems thatmember countries of WTO doubt to implement trade liberalization fully. As aprove is that the developed countries still give incentives to their farmers in orderto increase their domestic products, meanwhile developing countries still prevailtariff. This research intends to explore impact of agricultural export subsidieselimination by developed countries on the performance of asean macroeconomiesand Indonesian trade balance.
LITERATURE REVIEW
Basic Concept of Export Subsidies
Export subsidy is an incentive given by a government to their exporters withexpectation that this policy will be able to encourage the exports. This policy iscarried out through several ways such as: direct grant, export’s credit, and exportpromotion. With kind of subsidies, cost of exported products will decrease, sothat the export will rise. The comparative advantage and competitive advantageof the product will also increase. Besides that, the price of such commodities willbe cheaper than those of foreign goods.
The impacts of export subsidy are varied (Haryadi, 2008). If the export subsidyis directed toward foreign market, so the domestic price will be getting higher. Itis, however, generally this policy is carried out to protect domestic producer whois facing a competition in foreign markets. Through the protection, it is expectedthat exported products will increase.
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Export Subsidies (Large Countries Case)
Basically, there is no difference between export subsidy in the case of large countriesand small countries (Salvatore, 2000). The different is in the ability of the policy toaffect world price (Haryadi, 2009). If export subsidy is given by a large country, sothe ratio of the world price will change, and vise versa.
Figure 1: Impact of Export Subsidy Using General Equiblibrium Model forA Large Country’s Case
Source:Modified from Dunn Jr and Mutti (2000)
The impact of export subsidy for large countries can be explained in Figure 1.Before country A applies export subsidy, the country’s production is in P1, whileconsumption is in C1, in which indifferent curve is tangent of price ratio. Figure 1shows the impact of export subsidies using General Equilibrium approach for alarge country’s case. Say that the government of country A give an export subsidyto her cloth producers. This then causes the world price for cloth decrease relativelyto the price of food. At this condition, for a certain level of export subsidy, domesticprice for cloth wil increase even it is not as high as an increas e in the previous.This policy leads the world price ratio shift from TT to P3C3. Production is in P3.International trade now is taking place at the price ratio along P3C3.
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New consumtion balance is located at C2, when export subsidy and the linedistorted domestic price is tangent of an indifferent curve, and world price linealso passes this point (Figure 2). As it is shown at Figure 3, country A can achievean indifferent curve higher than previous one due to the export subsidy’s policy.It is, however, the magnitude of this increase is affected by a change of currentworld price ratio. Briefly, it could be said that country A will take benefit fromexport subsidies when the benefit from TOT is larger than the loose obtained frominefficient domestic resource. To what extend the improvement of TOT, it is dependon the elasticity of domestic and supply of domestic and foreign.
It is, however, export subsidy will create disbenefit for ROW’s producers,because they will lose their competitive advantage compare with the producersgiven export subsidy. If each country carried out this policy , they can conter withthe same policy. This then cause TT shifts bact to the provious position.
Previous Study about the Impact of Trade Liberalization
Impact on Macroeconomic Performance
UNCTAD (2003) carried out a research in a number of country concerning withthe impact of trade liberalization on export growth. The finding showed thatIndonesia is the country that will take a smallest positive impact after Turki.Eventhough this study did not state too specific regarding with the impact of exportby sectoral, the result give an indication that Indonesia has a lot of problems, eitherfrom supply side or demand side.
Devaragan, Lewis dan Robinson (1990) explored the impact of tradeliberalization with focussing one two sector model. Their finding showed that thechange in term of trade (TOT) in the African Countries has created an income effectand results in an increase in demand of goods for domestics higher than those ofincome effect. Based on this finding, this effect did not improve their economiesbut worsen their balance of trade. This finding is consisten with Aggarwal andAgmon in Wijaya (2000). Wijaya found that eventhough developing countriesliberate their trade and investment sistems, investor countries would get morebenefit compared with developing countries.
In the contect of APEC, a research regarding with trade liberalization has beencarried out by Oktaviani (2000). She analyized the impact of trade liberalizationon the macro and sectoral economy in agricultural sector. In an integrated worldmarket, changing global and regional trade policies can influence the economicperformance of any given country. In the Asia Pacific region, the APEC forum hasbecome an important vehicle for cooperation among member nations. The resultsfor APEC countries from the GTAP simulations can be summarized as follows.Most APEC members experience positive impacts resulting from the eliminationof tariffs in all APEC countries. Real GDP increases in all APEC countries in the
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short run (0.03 -5 per cent) and more in the long run (up to 20 per cent for ASEANcountries), except in North America. Unlike other APEC countries, householdconsumption decreases in North America. Together with a decrease on net exports,this brings about a decrease in GDP expenditure.
This finding is similar to those of Murtough et al. (1994), Hertel et al. (1995) andWalmsley (1998) and relates to relatively high initial tariffs. The larger improvementof GDP in the long run may be caused by an increase in the expected global rate ofreturn on capital, reflecting increased capital productivity in the long run. Giventhe focus of this study on Indonesia, the results for other APEC members of tradeliberalization by only the APEC developed countries have not been reported indetail in the thesis. The results are, however, similar to those in Murtough et al.(1994), namely small gains. APEC members as a group will be better off by notdelaying trade liberalisation.
Futhermore, Oktaviani (2000) also stated that with capital mobile in the longrun steady state simulation, the estimated impacts of trade liberalization aresignificantly bigger than those estimated using the initial non-equilibrium database.For example, real GDP in Australia-New Zealand increases by 3.1 per cent usingthe steady state database but only 1.59 per cent under the benchmark data base.The relative and absolute differences are even greater for some other regions. Thesedifferences suggest it is important in long run CGE analysis to use a properlyadjusted database. If the long run requires rates of return to be equal, then thosestudies that have not used a steady state database are likely to have wronglyestimated, and probably underestimated, the impacts of the exogenous changesanalyzed. The results of most long-run CGE studies would be subject to thisqualification.
In the contect of AFTA, impact of liberalization has been explored by Hakim(2004). He stated that the ASEAN member economies have been pursuing differenteconomic co-operation in order to enhance trade among the members. In 1977 anASEAN Preferential Trading Arrangement (PTA) was established. Due to limitedproduct coverage and a lack of pro-competitive environment, the ASEAN PTAdid not bring about what the members expected. A successful history of theintegration of Europe (European Union) and the challenge of North American.
Free Trade Area have forced the ASEAN member countries to re-evaluate theirpast co-operation and to strengthen their own co-operative arrangement. Theestablishments of the European Single Market 1992 and NAFTA would affect theeconomic structure (trade) of the ASEAN countries. Driven by the emergingmarkets in several regions such as China and Southeast Asia, intra-regional tradeamong ASEAN has been profound. The flows of intra-regional investment havealso complemented the growth of intra-regional trade in reinforcing the inter-dependence of ASEAN economies. In response to the more open world economy,
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economic deregulation and trade liberalisation provide a solid foundation for thesuccess of regional co-operation. Therefore in 1992 the ASEAN nations reviewedtheir past and current trade agreement and agreed to move to a deeper economicco-operation by establishing the so-called ASEAN Free Trade Area (AFTA).
The establishment of AFTA, however, raises criticisms and concerns whetherAFTA tariff would boost intra AFTA trade. A similarity in natural endowment,diverse in economic development within the ASEAN member countries and a highdependency of their trade on other trading partners such USA, Japan and EU wouldimpede and prohibit trade among the members. In addition, the 1992 agreementalso excluded agricultural products from tariff reduction. Therefore, the effectivenessof the establishment of AFTA was overwhelmingly questionable. Despite the factthat the member reviewed the 1992 AFTA agreement and decided to includeunprocessed agricultural products in the CEPT scheme, Indonesia and Malaysiaexpressed their concerns over the possible impact of the AFTA on millions of farmers.
Impact of World Trade Organization on Economy
In the context of WTO, research about the impact of trade liberalization has beencarried out by McKibbin dan Woo (2003), Morley dan Piñeiro (2004), Brooks danSugiyarto (2005), Walsh et al. (2005). McKibbin dan Woo (2003) carried outsimulasion using a number of scenarios for multi-countries macroeconomic model.His finding showed that the China entrance to WTO created a positive effect onChina it self, but it has a small effect on OECD countries.
Pineiro (2004) analyzed the effect on output, employment and poverty of two(2) alternative versions of further trade liberalization- one representing free tradeworld wide (WTO) and the other a Western hemisphere free trade bloc (FTAA).The paper introduces international commodity price changes derived from a worldmodel into national Computable General Equilibrium (CGE) and micro simulationmodels for fifteen (15) Latin American countries to estimate how FTAA and WTOwould affect sectoral output, employment, wages and poverty levels at the nationallevel for each of the countries. We found that either of these two alternatives isexpansionary for both output and employment in general and for agriculture inparticular in most Latin American countries. WTO particularly favors the ruralsector because the elimination of producer subsidies in developed countries causesa big increase in prices of all food commodities, especially on grains, dairy productsand milk. As a result we found that in general, trade liberalization reduced skilldifferentials, both within the urban sector, and where we had the information,between the rural and urban unskilled. Finally, the poverty microsimulationexercise showed that the poor are helped by either WTO or FTAA. Either versionreduces poverty and inequality, or the changes are especially significant underthe WTO. Clearly the rural poor pay a fairly heavy price for the producer subsidiesin developed countries.
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Brooks dan Sugiyarto (2005), address two question concerning with theimplementation of Doha Development Agenda: First, is there any logic reasonsfor developing countries to implement trade protections?. Second, is there anyimpact of agricultural trade liberalization if all members committed to implementThe Doha Agenda?. Thhese two questions indicated that tax for domestic productsseems difficult to be implemented because it has to cause the welfare fail whenliberalization is eliminated. Based on literature, the study of impact of exportsubsidy on the macroeconomics is stiil poor.
RESEARCH METHOD
Types and Sources of Data
This study uses secondary data, mostly derived from the database of General Tradeanalysis Project (GTAP) version 7. Other complementary data derived from relevantagencies such as the World Bank, International Monetary Fund, Bank Indonesia,Central Bureau of Statistics, ASEANSec, Ministry of Trade, Ministry of Industry,Ministry of Foreign Affairs and others.
The main analytical tool used is the GTAP multi-country. In the GTAP database there are 113 countries / regions and 57 commodity sectors. Data by country/regions and sectors will be aggregated and disaggregated based on the purposesof the study. The process of sorting and merging it (disaggregation and aggregation)will be determined by various considerations: (1) for the ASEAN countries, ASEAN-5 will be separated with the rest of ASEAN such as Cambodia, Lao, Myanmar, andBrunei.
Table 1Aggregation of Countries/Regions based on GTAP Aggregation
Aggregation based on GTAP Database
No New Aggregation Keterangan
Code Description
1 ANZ Australia, New Zealand Australia, New Zealand2 Chn China China3 Jpg Japan Japan4 Idn Indonesia Indonesia5 Mys Malaysia Malaysia6 Phl Philipines Philipines7 Tha Thailand Thailand8 Vnm Viet Nam Viet Nam9 XSE Rest of ASEAN Brunai, Lao, Cambodia, Singapore, Myan Mar10 USA United States of America United States
contd. table 1
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11 EU European Union Austria;Belgium; Denmark; Finland; France;Germany; United Kingdom; Greece; Ireland;Italy; Luxemburg; Netherlands; Portugal; Spain:Sweden
13 ROW All other region Rest of Oceania; Hong Kong; Taiwan; Rest ofEast Asia; Singapore; Rest of Southeast Asia;Canada; Mexico; Rest of Neorth America;Columbia; Rest of Andrean Pact; Argentina;Brazil: XChile; Uruguay; Rest of South America;Central America; Rest of FTAA; Rest of TheCarribian; Switzeland; Rest of EFTA; Rest ofEurope; Albania; Bulgaria; Croatia; Cyprus;Czech Republic; Hungaria; Malta; Poland;Romania; Slovakia; Slovenia; Estoria; Latvia;Lithuania; Russian Federation; Rest of FormerSoviet Union; Rest of Middle East; Morocco;Tunisia; Rest of North Africa; South Africa; Restof South African CU; Malawi; Resto of Sub-Saharan Africa; Armenia; Azerbaijan; Georgia;Iran; Rest of Western Asia; Ethiopia; Nigeria;Sinegal; Ukraina; Rest of Eastern Europe;Norway; Costa Rica; Guatemala; Nicaragua;Panama; Egypt.
The same condition will be treated in the contects of commodity/sectors, (2)agricultural commodities will be separated according to group of commoditiessuch as those found in the GTAP 7. Based on the above considerations, in theresearch, it is planned that countries or regions will be aggregated into 13 regions(Table 1), while the commodity will be grouped into 16 (Table 2).
DATA ANALYSIS METHOD
Data were analyzed both qualitatively and quantitatively. Qualitative analysisis intended to see the development and trade flows and to determine thecontribution of member countries in intra-and extra-ASEAN trade. Based onthis analysis, it will be known the direction and can also be identifiedopportunities that could be exploited by Indonesia. Meanwhile, Quantitativeanalysis was conducted to measure the impact of trade liberalization policiesthat have been agreed by ASEAN. GTAP model in detail can be found in Hertel(1997).
No New Aggregation Keterangan
Code Description
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Table 2Agregation of sectors based on GTAP Aggregation
Agregasi Sektor Berdasarkan Database GTAP
No New Sectors Detailed Sector
Code Deskription
1 Paddy Rice and Processed rice Paddy rice, processed rice2 Wheat Wheat Wheat3 Corn Corn Cereal grains nec4 Horti Vegetable and Fruit Vegetabel, fruit, nuts5 Soy bean Soya bean Oil seeds6 Sugar Sugar Sugar cane, sugar beet, Sugar7 Plant based Plant based fiber Plant-based fibers
sheep, goat, horse9 Other Animal Chicken, bird etc.
Products10 Milk Milk and Processed Milk Raw milik, Dairy products11 OthAgric Other Agricultural product Crops nec, wool, silk worm, cocoons;
forestry, fishing12 Vegetable Oil Vegetable Oil Vegetable oils and fats13 Food Processed Food Food products nec, Bevareges and
tobacco products14 Oth Prim Other Primary Products Coal; oil; gas; mineral nec15 Mnfcs Manufacture Textiles; wearing apparel; leather
products; wood products; paperproducts; publishing; petroleum; coalproducts; chemical, rubber, plasticprods; Mineral products nec; ferrousmetals; Metal nec; Metal products,Motor Vehicle and parts; Transportationequipment nec; Electric equipment;Machinary and equipment nec;Manufactures nbec
16 Svces Services and activitties NES Electricity; Gas manufacture,distribution; Water, construction; Trade;Transport nec; Insurance;Businesssevices nec; Recreation and otherservices; PubAdmin/Defence/Health/Educat : Dwellings
DATA PROCESSING METHOD
GTAP model is processed by using software RunGTAP. Stages of data processingcan be explained by Figure 3. The process of aggregation of sectors and countries/regions is done by using GTAPAgg. Data processing with RunGTAP will be doneby using an adjustment closure (cover model) and shock in accordance with the
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purpose of research. Processed data will produce the output (out) like a solution,volume changes, and decomposition. Completion of this section includes a solutionfile (solution file), change in volume (volume changes), and decomposition(decomposition).
RESEARCH STAGES
This research was conducted through several stages (figure 4). Generally, it can beexplained as follows. To get a map of trade flows and policy simulation, first wemust own GTAP program Agg. The program has database, main model, andexperiment. Through this program countries /regions and sectors (commodities)can disaggregated accordance with countries that becomes the focus in the research.After aggregating regions and sectors, then shock of with the government adjustedby agreement of ASEAN countries. Furthermore, using simulation to see the impactof tariff elimination was made. Through in-depth analysis process (in-depth study),we will obtain results that can explain the changes as the impact of implementationof free trade policies in the ASEAN.
Figure 2: Research Flow Chart
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Policy Simulation
Simulations of the impact of the elimination of export subsidy policy are carriedout with removing the export subsidies 100%.
RESULTS AND DISCUSSION
Inditifying the product which is given Export Subsidies by Developed Countries
Based on the GTAP 7 databased, two developed countries give export subsidies totheir exporter. Both countries are USA and EU. Nevertheless, USA gives exportsubsidies for milk commoditiy and the magnitude of that subsidy is equal todifferent countries destination (Tabel 3).
Tabel 3Export Subsidies for Commodity of Milk Given by United States of
America Based on Countries Destination
Countries Destination Rate (%)
Australia & New Zealand 7.83China 7.83Japan 7.83Indonesia 7.83Malaysia 7.83Philippines 7.83Thailand 7.83Vietnam 7.83Other ASEAN Countries 7.83European Union 7.83G33 7.83Rest of the World 7.83Average 7.83
Source: GTAP 7 Database
Contrast with USA, EU apply export subsidies for more than two commodities(Tabel 4). Among those commodities, subsidy for sugar is the highest, followed byrice, corn, and milk. The lowest subsidy is given by EU for vegetable productswith average 2.31 percent. Interestingly, the number of subsidies given by EU notonly vary based on commodities but also vary based on countries destination.
Impact Export Subsidies on World Macroeconomies
The impact of export subsidy elimination policy by developed countries on somemacroeconomic indicators is summarized in the Table 4. The export subsidieselimination policy by USA and EU will create a positive impact on terms of tradeof both countries even relative small (between 1% up to 2%). A small impact also
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Tabel 4Export Subsidies Given by EU based on Countries Destination
(%)
Countries Destination Rice Wheat Corn Vegetable Sugar Cattle etc Milk
happened for terms of trade in the rest countries. Nevertheless, the impacts on therest countries are negative (except for Australia and New Zealand). Both contriesthat is also categories as developed countries take the largest positive impact amongcountries in the world (Tabel 5).
Impact of export subsidy policy by developed countries (USA and EU) on riilGDP is also summarized in Tabel 4. The impact of this policy on rill GDP is alsosmall. Among countries in Tabel 4, EU will take the largest impact of this policy(even below 1%). Interestingly, . the policy would not change the real GDP of fourcountries (China, Indonesia, Malaysia, and USA). On the contrary, this policy resultsin a decrease in the real GDP of the Australia, New Zealand, Japan, Philippines,Thailand, Viet Nam, and the Rest of ASEAN members. Nevertheless, the impact isexpected to be very small.
With regard to balance of trade, simulation result indicates the balance of tradeof EU and USA still surplus even they eliminate their export subsidies. On thecontrary, the trade balance of the rest countries still experience deficit even USAand EU has eliminate their subsidies for their exportes. This finding supports theargument that USA and EU still have some advantage even they apply this policy.
The impact of export subsidies elimination by USA and EU on welfare societyhas also been explored. Simulation result shows that welfare society for bothcountries would rise as the impact of export subsidies elimination. Meanwhile,the rest countries welfare society (except Australia and New Zealand) wouldexpected to decline. Japan and Philippines appear as the countries that experience
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Table 5Impact of Export Subsidies by Developed Countries on Several World
Macroeconomic Indicators
Country GDP Riil Term of Trade Balance of Trade Welfare Change(US $ Million) (US $ Million)
Australia & New Zealand -0.01 0.32 -161.63 252.93China 0.00 -0.02 55.00 -101.62Japan -0.01 -0.03 -155.62 -358.49Indonesia 0.00 -0.05 6.54 -24.19Malaysia 0.00 -0.03 4.06 -19.47Philippines -0.01 -0.05 2.30 -27.29Thailand -0.01 0.00 13.41 -3.89Vietnam -0.01 -0.03 2.84 -10.06Rest of ASEAN -0.03 -0. 07 1.10 -45,07United States of America 0.00 0.01 385.35 55.34European Union 0.03 0.02 846.90 2861.46G33 -0.01 -0.01 24.83 -114.06Rest of the World -0.02 -0.03 -253.29 -1738.82
the largest decline in their welfare society. Interestingly, eventhough the welfareof Thailand also shrinks, its decrease would be relatively small.
CONCLUSION AND POLICY IMPLICATION
Conclusion
1. Among developed countries, USA and EU are two among the deveopledcountries who still implement export subsidies policy.
2. The elimination of export subsidies implemented by USA and EU does notcontribute significant negative affect on the world macroeconomic indicators.
3. USA and EU will be able to improve their macroeconomic indicators eventhey eliminate their export subsidies policy
4. The macroeconomic indicator of developing countries does not improvesignificantly even developed countries eliminate their export subsidies policy.
Policy Implications
Based on the conclusion, the policy implications are formulated as follow.
1. All countries should eliminate export subsidies for their producers.
2. Developed countries should eliminate all kinds of export subsidies.
3. There is no reason for developed countries to doubt in eliminating exportsubsidy policy.
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